'Since You're So Rich, You Must Be Really Smart': Talent and the Finance Wage Premium

105 Pages Posted: 19 May 2016 Last revised: 7 Jun 2018

Michael J. Böhm

University of Bonn

Daniel Metzger

Stockholm School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group; Swedish House of Finance

Per Strömberg

Swedish House of Finance

Date Written: June 4, 2018

Abstract

Financial sector wages increased extraordinarily over the last decades. An explanation for this trend is that skill demand rose more in finance than other sectors. We use Swedish administrative data, which include cognitive and non-cognitive ability, as well as U.S. data, to examine talent allocation and relative wages in the financial sector. We find no evidence that talent in finance improved, neither on average nor at the top. A changing composition or return to talent cannot account for the surging wage premium. Our findings alleviate concerns about a brain drain, but indicate that finance workers capture rising rents over time.

Keywords: Industry Wage Premia; Talent Allocation; Earnings Inequality; Compensation in Financial Sector

JEL Classification: J24, J31, G20

Suggested Citation

Böhm, Michael J. and Metzger, Daniel and Strömberg, Per, 'Since You're So Rich, You Must Be Really Smart': Talent and the Finance Wage Premium (June 4, 2018). Riksbank Research Paper Series No. 137; Swedish House of Finance Research Paper No. 18-3; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 553/2018. Available at SSRN: https://ssrn.com/abstract=2780367 or http://dx.doi.org/10.2139/ssrn.2780367

Michael J. Böhm (Contact Author)

University of Bonn ( email )

Adenauerallee 24-42
Institute for Applied Microeconomics
Bonn, NRW 53113
Germany
+49 228 73-9240 (Phone)

HOME PAGE: http://www.iame.uni-bonn.de/people/michael-boehm

Daniel Metzger

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm
Sweden

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Per Stromberg

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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